Nifty50 Boxed Between 23600 And 23800

Market Setup

Gift Nifty is neutral at present with a slight positive gain of 4 points. With the implied volatility now at  a  comfortable level, traders who bet on the market not going below 23600 (put writers) are confident. This makes it harder for the Nifty50 to fall below 23600. At the same time, traders who bet on the market not going above 23800 (call writers) are also confident. In simpler terms, these trader activities are creating a range where the Nifty50 is likely to stay between 23600 and 23800 for now. The market is being "boxed in" by these two groups of traders.

Expect a consolidation at these levels with the range being 23600, which is also the level of 200 DEMA placed at 23610, to 23795, which is also the swing high and the level from where Nifty50 started its downfall on January 7. This level of 23795 is also the zone of call writers of 23800 levels. All this will make 23800 level a strong resistance; any break above this will push the Nifty to 23850 levels.

On the lower side, the crucial level of 200 DEMA, which is placed at 23610, is a strong support. This happens to be the zone of put writers of 23600 levels. This might see buying on dips, where any intraday dip towards the 23650 levels might see good buying and 23750 levels might see good profit booking.

Bank Nifty will face resistance at 200 DEMA placed at 50209 and as happened today and will face rejection from here. Any dip towards 10 and 20 DEMA placed at 49323 and 49403 might see  good buying and 50000 might see profit booking. Bank Nifty at closing was trading over 50000, at 50157, yet the call writers have conviction in their positions. We have not seen call writers covering their positions today; in fact, they have added more calls to their positions, giving belief to the fact that this level might be protected in the near future. The range of Bank Nifty is very wide, and Bank Nifty is also seeing high premiums and wild swings.

FIIs have covered their short positions in options and are now neutral in options but still remain bearish in Futures. Nifty has regained and closed the day above all important averages, wherein the bulls have the momentum. The derivative set-up clearly suggests that Nifty should be range-bound for this expiry between 23700 and 24000. India VIX has also come down to close at 14.02, which is well within the comfort range.

Yesterday 

Spot
Nifty50 opened gap up by 142 points and Bank Nifty opened gap up by 328 points respectively.

Nifty50 did face some selling in the opening minutes to make its intraday low of 23423. A short covering rally emerged in the markets led by the leading banking stocks like HDFC Bank, Kotak Bank and ICICI Bank. Big stocks inNifty50 such as  Reliance Industries Ltd, Larsen & Toubro and all the major indices barring Nifty FMCG made gains and closed the day in the green. Nifty50  has regained and closed above all major averages of 200 and 50 DEMA. The 100 DEMA is placed at 23899, which will be a resistance to Nifty50. As said in our yesterday's report that we will be a lot dependent on the cues from US markets and we have digested the expected fall in Dow and Nasdaq. In fact, both the indices fared much better after the postponement of tariffs on Canada and Mexico and closed the session much higher than was expected. This was cue enough coupled with a strong close yesterday to give enough momentum to Nifty50 to close the session at the highest point since January 6. 40 out of 50 Nifty stocks closed the day in green.

Bank Nifty too nearly mirrored the movement of Nifty50 and reached its intraday low of 49611. Similarly, a short covering rally led by all banking majors rallied the Bank Nifty to its intraday high of 50202. Bank Nifty faced resistance from 200 DEMA placed at 50207 and 50 DEMA placed at 50187 to finally close the day at 50157. 10 out of 12 banking stocks closed the day in green.

It was also a very good day for the other Indices: Nifty Next 50 (+1.54%), Nifty Midcap (+1.56%), Nifty IT (+1.29%), Nifty Metal (+1.79%), Nifty Auto (+0.89%), Nifty PSE (+2.72%) and Nifty CPSE (+2.05%) all closed the day in green. A notable loser was Nifty FMCG (-0.25%).

F&O
At the opening, our markets were reacting to the better placement of the US markets after the US administration's decision on the postponement of sanctions on Canada and Mexico. In the day-before market session, our markets had digested the fact that Dow and NASDAQ could be well below 800 points and 300 points respectively, which was being reflected through their futures. The US markets, though down from the previous day's close, did much better than was seen in the futures activity. This promptly indicated to our markets to move higher, resulting in short covering in every index.

FIIs, on the other hand, clearly turned bearish in the market . They shorted futures, shorted calls, and covered puts in the market. Some amount of profit booking was  also seen in stock futures. Retail clients were bullish in all derivative segments. They were long on futures, long on calls, and short on puts, whereas proprietary traders were a mixed bag. DIIs are mildly bullish in index futures and strongly bearish in stock futures. There is a direct fight between the FIIs and retail clients in index derivatives which is overall bearish.

FIIs have covered their short positions in options and are now neutral in options but still remain bearish in Futures. Nifty regained and closed the day above all important averages, wherein the bulls had the momentum.

Options Chain: (Nifty50 Expiry 6th Feb 2025)
Nifty50: The February 6  option chain shows that aggressive put writing was seen at every level from 23000 up to 23700. With the addition of 10.8 million puts,open interest at 23500 has now become the immediate major support for the market. Some major call unwinding happened from 23500 level up to 24200 level. With 15.6 million calls, 24000 level has the maximum OI of calls and is the major resistance.

Yesterday’s rally and the conviction of the put writers has put a serious dent in the confidence of the call writers wherein they had to short cover calls at 23400, 23500, and 23600 levels. This is also very clear from the pyramid chart wherein now a strong base has formed at 23500 level. The IV has reversed from yesterday and is now at 13.93 on the put side and 11.50 on the call side, which can restrict the higher movement of Nifty60.

Bank Nifty: (Expiry February 27 ): Put writers have rolled up the puts from 49000 to 49500. Substantial call unwinding is seen at every level from 45200 up to 49900. Still, there is conviction in the call writers at 50000 as they added more calls at this level. 50000 still carries the maximum call OI at 1.006 million followed by 51000 level with 992000. The IV at the put side is 17.39 compared with  15.41 on the call side, which is also an indication of the cap on the higher movement of Bank Nifty.

Support and Resistance
 - Nifty: Major support is at 23500 and major resistance is at 24000.
 - Bank Nifty: Major support is at 49000 and major resistance is at 51000.
 - Sensex: As it was Sensex weekly expiry yesterday, formation will start from today.

Put-Call Ratio and At-The-Money
Nifty: Overall 1.11 and at ATM 0.83 (Bullish)
Bank Nifty: Overall 0.93 and at ATM 0.90 (Bullish)
Sensex: As it was Sensex’s weekly expiry yesterday, formation will start from today.